Regional volatility: common or country-specific? Exploration of international stock market

Asma Mobarek (Stockholm School of Business, Stockholm University, Stockholm, Sweden)
Michelle Li (Financial and Sector Accounts, National Accounts Department, Statistics Sweden, Sweden)

Studies in Economics and Finance

ISSN: 1086-7376

Publication date: 30 September 2014



The purpose of this paper is to test whether the volatility of regional stock markets’ is common or country-specific for 46 international markets of the Asian, European, African and Latin American regions using the Morgan Stanley Capital International daily prices in the period from January 1998 to December 2009. Further, the study has been divided into two sub-periods to distinguish the effects of the current sub-prime financial crisis and to determine whether the crisis has an impact on the fluctuations of common component of stock market volatility.


The paper applies the time-varying weighting methodology of Lumsdaine and Prasad (2003) to determine whether the volatility fluctuation is country-specific or common across the countries.


The results evidence that the volatility of stock returns is due to common factors, rather than country-specific ones, but this is not always the case. However, this common component is more stable in European and Latin American countries than in the Asia-Pacific and African regions. Furthermore, the results suggest that the influence of a common component has been enhanced significantly during the current sub-prime financial crisis.

Practical implications

The study has implication for domestic and international investors, portfolio managers, as well as policy-makers to implement economic and financial policy that promote stability, reduce vulnerability to crises and encourage sustained growth and living standards.


To the best of the authors’ knowledge, this is the first study to include four regional samples and test the common component of fluctuations of regional stock markets volatility.



The authors acknowledge the funding from the January Wallander och Tom Hedelius Stiftelse Foundation, Handelsbanken, for funding the project.


Mobarek, A. and Li, M. (2014), "Regional volatility: common or country-specific? Exploration of international stock market", Studies in Economics and Finance, Vol. 31 No. 4, pp. 406-425.

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